In a previous article, I shared how and why I began my Budget Conscious life and why I think you should too. Indeed, knowing how to make a budget should be taught from childhood. The discipline to live by a budget is best built when it is started early enough.
When I decided I have to be conscious about my budget and my spending, I knew I needed to devise a formula that works for me. It is worth emphasizing that this budget is yours. It is not your friends’ or your guests’ even though you make considerations for them but what you must ensure is that whatever you do is sustainable. Here was what I did:
Know Your History
I sat down to make a list of all I remember constituted regular income sources and spending pockets and then monitored for 2 months within which time I merged some items on the list and included more. This was like a period for gathering the tools for the journey I had decided upon. There are budgeting apps to help with these; however, if you do not want to dive straight into apps, you could take notes as I did.
After I had made a list, I consolidate every Item on the list into 10 categories. My choice of 10 categories was arbitrary, It could be more for different individuals but I was looking for a manageable size. If you can keep it at 10 or less, great! Otherwise, the idea it is not as important as sticking to the list after you have drawn it out.
Find Your Budget Formula
In arriving at a formula that works for me, I insisted on setting aside 20% of my income as savings, and another 10% for tithe. That left me with 70% on my income. In other words, I arrived at a 70-30 formula. Determined that hell will freeze over if before this ratio shifts.
Essentially, I had paid myself first in SAVINGS 20% and set aside my religious commitment- 10% TITHE. I thankfully wasn’t in serious debt- I was owing some $20 – $30 and (I had also received a grant from a relative for a business I was setting up). Of the balance 70% of my income, I set aside 10% and called it EMERGENCY FUNDS; put 20% towards my yearly RENT; 15% for TRANSPORT AND COMMUNICATION; 5% for BOOKS; 20% for FOOD.
On this formula, I made great use of thrift stores for purchases. The first year was very challenging but thereafter, it became easier. Learning how to make a budget is a rewarding skill. It not only helps improve your future financial stand but builds your character. Something we see more clearly with budgeting is that there is an opportunity cost everytime we go above our budget for the month in any of the categories.
Plug The Noise
One has to be careful. The temptation to return to your former careless life is stronger just after you start. You may begin to see the need. Set aside at least 10% for debt repayment if you are in debt. Being in debt is not enough to defer starting a budget-conscious life. Your creditor would be happier than not if they know that you are implementing an installment repayment plan.
Stick to your budget for two months and see how you get on. What will you consider sacrificing to create a surplus? Need a roommate to create a surplus in your HOUSING category? What are you saving towards- an investment? Remember that your budget is towards your goals.